UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

Amendment No. 1

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2012

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM ______ TO ______

COMMISSION FILE NUMBER 001-33475

OFFICIAL PAYMENTS HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

3550 Engineering Drive, Suite 400, Norcross, Georgia 30092

Registrant's telephone number, including area code:  (770) 325-3100

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act
NONE

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes ¨    No x 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes ¨    No x 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x    No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x    No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definition of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.  (Check one):

 

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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).     Yes ¨    No x

As of March 30, 2012, the aggregate market value of common stock held by non-affiliates of the registrant was $74,888,210, based on the closing sale price of the common stock on March 30, 2012, as reported on The Nasdaq Stock Market. As of January 18, 2013, there were 16,712,279 shares of common stock outstanding.

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OFFICIAL PAYMENTS HOLDINGS, INC.

FORM 10-K/A

TABLE OF CONTENTS

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EXPLANATORY NOTE

 

 

Official Payments Holdings, Inc., or OPAY, is filing this Amendment No. 1 to its Annual Report on Form 10-K for the fiscal year ended September 30, 2012, as originally filed with the Securities and Exchange Commission, or SEC, on December 14, 2012, for the sole purpose of including the disclosures required by Part III of Form 10-K, as set forth below.  This Amendment No. 1 on Form 10-K/A does not change the previously reported financial statements and other financial disclosures included in our Annual Report on Form 10-K. In addition, in connection with the filing of this Amendment No. 1 and pursuant to the rules of the SEC, we are including as exhibits to this Amendment No. 1 certain currently dated certifications. Accordingly, Item 15 of Part IV has also been amended to reflect the filing of these currently dated certifications.

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PART III

ITEM 10—DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

A list of our executive officers and their biographical information appears in Part I of our Annual Report on Form 10-K for the fiscal year ended September 30, 2012 as filed with the SEC on December 14, 2012, under the caption Executive Officers of the Registrant.  

The names and certain biographical information of each director are set forth below.

Charles W. Berger

Age:  59—Director since:  January 2002

Recent Business Experience:  Since August 2010 Mr. Berger has served as Chairman and Chief Executive Officer of ParAccel, Inc., a provider of analytical technology services.  Mr. Berger was our interim Chief Executive Officer from June 2010 through August 2010.  He served as Chief Executive Officer of DVDPlay, Inc., a manufacturer and operator of DVD rental kiosks, from April 2006 through DVDPlay's acquisition by NCR Corporation in December 2009, and was Chairman of the Board of DVDPlay from December 2001 through the acquisition.  From March 2003 through September 2005, Mr. Berger served as President, Chief Executive Officer, and a director of Nuance Communications, Inc., a publicly traded company that developed and marketed speech recognition software.  In September 2005, Nuance Communications merged with Scansoft, Inc.  Mr. Berger has also served as the managing director of Volatilis, LLC, a private investment and aviation services firm, since its founding in June 2001.  Mr. Berger was also a director of SonicWALL, Inc., a publicly traded manufacturer of computer network security applications, from December 2004 through SonicWall's acquisition by an investor group led by Thoma Bravo, LLC in July 2010.  Mr. Berger also serves on the Board of Directors and as Trustee for the United States Naval Memorial and is a Trustee and member of the Investment Committee for Bucknell University.  We believe that Mr. Berger's qualifications to sit on our Board of Directors include his 32 years of experience in the technology industry, his significant experience in the banking and financial industry, and his experience as a director of publicly traded technology companies.

Morgan P. Guenther

Age:  59—Director since:  August 1999

Recent Business Experience:  Since June 2010 Mr. Guenther has served as President and Chief Executive Officer of Next Issue Media, LLC, a technology and content  management platform owned by leading global publishers and formed to develop, market and deliver paid premium content to consumers via tablets, smartphones, netbooks and other connected devices. From April 2009 to June 2010, Mr. Guenther served as a private consultant to technology companies.  Mr. Guenther served as Chairman and Chief Executive Officer of Airplay Network, Inc., a wireless entertainment services company, from May 2005 through April 2009.  From February 2003 to April 2005, he served as a private consultant to technology companies.  From October 2001 through January 2003, Mr. Guenther served as President of TiVo, Inc., a creator of digital video recording services.  From June 1999 through October 2001, Mr. Guenther served as Vice President of Business Development and Senior Vice President of Business Development and Revenue Operations at TiVo.  Mr. Guenther also serves as a board member for

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Integral Development Corp., a provider of electronic capital markets trading solutions.  Prior to joining TiVo, Mr. Guenther was a partner in the corporate and corporate finance group of Paul Hastings, an international law firm.  We believe that Mr. Guenther's qualifications to sit on our Board of Directors include his 13 years of executive management experience in the technology, wireless and digital media industries, his depth of expertise in areas of governance, finance and operations, and his significant experience as a director of technology companies.

James C. Hale

Age: 60—Director since: April 2011

Recent Business Experience:  Since August 1998, Mr. Hale has been a founding partner of FTV Capital and its predecessor firm, FT Ventures. Mr. Hale served as managing partner of the firm from 1998 through 2007. Before establishing FTV Capital, Mr. Hale was a Senior Managing Partner at Montgomery Securities, where he founded the financial services corporate finance practice. Mr. Hale currently serves on the boards of directors of the State Bank of India (California), a California state chartered bank, Public Radio International, a media company, and LOYAL3 Holdings, Inc., a capital markets software company, and on the investment committee of St. Ignatius College Preparatory, San Francisco, a college preparatory school. He was a director of ExlService Holdings, Inc., a publicly traded business process outsourcing company, from November 2002 through December 2006, and has served on the boards of several private technology companies.  We believe that Mr. Hale's qualifications to sit on our Board of Directors include his 31 years of experience in the payments, financial services, and technology industries, his expertise in finance, and his experience as a corporate director, including with payments and technology companies, and his leadership of audit committees.

Alex P. Hart

Age: 50—Director since: August 2010

Recent Business Experience:  Mr. Hart has served as our Chief Executive Officer and as a member of our Board of Directors since August 2010.   From September 2009 to August 2010 Mr. Hart served as President of the Fuelman Fleet Cards business unit of Fleetcor Technologies, Inc., a provider of specialized payment products and services to commercial fleets, major oil companies and petroleum marketers.  From May 2007 to April 2008, Mr. Hart served as Executive Vice President and General Manager of Electronic Banking Services for CheckFree Corporation, a provider of financial electronic commerce products and services.  From January 2001 through October 2002 Mr. Hart served as President of Corillian Corporation, a provider of online banking and bill payment software and services, and as President and Chief Executive Officer of Corillian from October 2002 through Corillian's acquisition by CheckFree in May 2007. We believe that Mr. Hart's qualifications to sit on our Board of Directors include his 24 years of experience in the banking and electronic billing and payment processing services, expertise in payments strategy, and executive management experience.

Philip G. Heasley

Age:  63—Director since:  August 2008

Recent Business Experience:  Since March 2005, Mr. Heasley has served as President and Chief Executive Officer of ACI Worldwide, Inc., a publicly traded developer of electronic payment software products.  From October 2003 to March 2005, Mr. Heasley was Chairman and Chief Executive Officer of PayPower LLC, an acquisition and consulting firm specializing in financial services and payment services.  From October 2000 to November 2003, Mr. Heasley served as Chairman and Chief Executive Officer of First USA Bank.  From 1996 until November 2003, Mr. Heasley was Chairman of the Board of Visa and a

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member of the board of Visa International.  Mr. Heasley also serves on the boards of directors of ACI Worldwide, Inc., Public Radio International, a media company, and Lender Processing Services, Inc., a provider of mortgage processing services, settlement services, mortgage performance analytics and default solutions.  He was also a director of Fidelity National Financial, Inc., a publicly traded company providing property inspections, preservation services and title insurance services, from October 2005 through March 2009.  We believe that Mr. Heasley's qualifications to sit on our Board of Directors include his 37 years of experience in the payments, financial services and technology services industries, expertise in corporate and payments strategy, extensive leadership, governance and executive management experience, and experience as a director with financial services, payments, and technology companies.

David A. Poe

Age:  64—Director since:  October 2008

Recent Business Experience:  Since April 2008, Mr. Poe has served as Senior Director of Edgar, Dunn & Company, an independent global financial services and payments consultancy.   From March 1998 to May 2008, Mr. Poe served as Chief Executive Officer of Edgar, Dunn & Company and as a consultant and director from March 1980 to March 1998.  Prior to Edgar, Dunn & Company Mr. Poe was a certified public accountant with Deliotte, Touche & Company.  Mr. Poe currently serves as Chairman of the Advisory Board for the Bank of San Francisco, and Chairman of the Board of Geothermal Engineering Ltd., a privately held UK company, and is a member of the board of directors of the University of Idaho Foundation.  In addition, he has served on the board of directors of several private technology companies. We believe that Mr. Poe's qualifications to sit on our Board of Directors include his 32 years of experience in the financial services and technology industries, including experience in strategic consulting with Fortune 1000 companies regarding payments-related issues, his expertise in payments strategy, data security, and operations, and his experience as a director of financial services and technology companies.

Zachary F. Sadek

Age: 33 – Director since: March 2009

Recent Business Experience:  Mr. Sadek serves as Principal of PCap Managers LLC, an affiliate of Parthenon Capital Partners, a private equity firm, and since June 2004 has been employed as an investment professional by affiliates of Parthenon Capital Partners.  From June 2002 to June 2004, Mr. Sadek was an investment banker with Dresdner Kleinwort Wasserstein, an investment banking firm.  Mr. Sadek currently serves as a board member for Merchant Warehouse.com Holdings, LLC, and PCP IWP Holdings LLC, and has previously served as a board member of several technology and services companies.  We believe that Mr. Sadek's qualifications to sit on our Board of Directors include his 10 years of experience in the investment and capital markets, expertise in financing, and experience as a director with two other technology services companies including service on audit and compensation committees.

Katherine A. Schipper

Age: 63— Director since: April 2011

Recent Business Experience: Since July 2006, Ms. Schipper has been Professor of Accounting at Duke University's Fuqua School of Business. Ms. Schipper was a Board member of the Financial Accounting Standards Board from September 2001 through June 2006. She was an editor of the Journal of Accounting Research from 1985 to 1999 and has also held editorial board positions with the Journal of

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Accounting and Economics, The Accounting Review, Accounting Horizons, the Journal of Business, Finance and Accounting, the Review of Accounting Studies, and the Contemporary Journal of Accounting and Economics. She has served on the Board of Trustees of the University of Dayton since 2005. In August 2007, Ms. Schipper was inducted into the Accounting Hall of Fame.  We believe that Ms. Schipper's qualifications to sit on our Board of Directors include her 31 years of experience with financial accounting and reporting.

Audit Committee Financial Expert

The Board has determined that at least two members of the Audit Committee, James C. Hale and Katherine A. Schipper, are each an "audit committee financial expert" as defined in Item 407(d)(5) of Regulation S-K, promulgated by the SEC.

Audit Committee

The company has a standing Audit Committee.  The Audit Committee's members, meetings, and functions are summarized below.

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Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, or the Exchange Act, requires our directors and executive officers, and persons who beneficially own more than ten percent of our common stock, to file with the Securities and Exchange Commission, or the SEC, initial reports of beneficial ownership and reports of changes in beneficial ownership of our common stock.  Officers, directors and holders of greater than ten percent of our common stock are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file.  To our knowledge, based solely on a review of copies of such reports furnished to us and written representations that no other reports were required, during the fiscal year ended September 30, 2012, our officers, directors, and greater than ten percent beneficial owners complied with all Section 16(a) filing requirements.

Corporate Governance Documents

In November 2003, the Board adopted a Code of Ethics for our Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer.  Effective May 4, 2004, we also adopted a Business Code of Conduct for all employees.  On May 6, 2010, we adopted our revised Corporate Governance Guidelines. On January 31, 2012, our Board adopted a revised version of the Business Code of Conduct for all employees.  Our Code of Ethics, Business Code of Conduct, and Corporate Governance Guidelines, as well as the charters for our Audit Committee, Compensation Committee, and Governance and Nominating Committee, are posted on the Investor relations section of our website.  Copies are also available, free of charge, upon request to the company, delivered to Official Payments Holdings, Inc., Attention: Corporate Secretary, 3550 Engineering Drive, Suite 400, Norcross, Georgia 30092.

 

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ITEM 11—EXECUTIVE COMPENSATION

Our compensation philosophy for all our employees is to create an overall compensation package that (1) provides fair and competitive cash compensation and (2) aligns the interests of our executives with the interests of our shareholders, principally through performance-based incentives and long-term incentives.  This compensation philosophy is particularly true for our executive officers, as we rely on their leadership, management skills, and experience for OPAY's continued growth and development.  The compensation discussion and analysis that follows discusses the compensation of the executive officers listed in the Summary Compensation Table below, whom we refer to as our "named executive officers."  Our named executive officers for fiscal year 2012 consist of Alex P. Hart, our President and Chief Executive Officer; Jeffrey W. Hodges, our Chief Financial Officer; Sandip Mohapatra, our Chief Technology Officer; Atul Garg, our Senior Vice President, Corporate Development; Keith S. Omsberg, our Vice President, General Counsel and Corporate Secretary; and Keith S. Kendrick, who served as our Senior Vice President, Strategic Marketing, for a portion of fiscal year 2012.

Our Compensation Committee establishes and reviews our overall executive compensation philosophy and objectives and oversees our executive compensation programs.  The primary goals of our compensation program are to:

·	attract, retain, and motivate talented employees;

·	support business strategies that promote sustained growth and development;

·	reward the achievement of business results through performance-based incentive programs; and

·	link executives' goals and interests with the interests of our shareholders by tying a portion of executive compensation to our stock.

We design our compensation strategy and packages for our executive officers to further these goals.

Our goal is to encourage and sustain high-quality performance by our executives.  To achieve this goal, we compensate our executives for their individual skills, talents, leadership qualities, and responsibilities, primarily through base salary.  To encourage our executives to meet and exceed current performance levels, enhance their skill levels, and maximize their contributions to our company, we also provide performance-based cash and long-term incentive compensation.  Our management incentive program incentivizes both the achievement of company-wide financial performance and specific, non-quantitative personal performance goals that contribute to the value of our company.  The combination of guaranteed cash compensation in the form of base salary and the potential for additional performance-based compensation through our incentive compensation programs allows us to reward our executives for the value they add to our company.

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Alignment

To align the interests of our executives with those of our company and our shareholders, we provide performance-based annual incentive and long-term incentive compensation.  Annual incentive compensation is based in part on OPAY's achieving specific goals or targets for the fiscal year.  When these goals or targets are not met, executives may not receive annual incentive compensation.  For example, in fiscal year 2011, the company did not meet the threshold level of financial performance specified in our management incentive plan for that year, and none of our executive officers received a payment under that plan for that year.  By linking individual incentive compensation to OPAY's goals, we align the interests of our executives with those of our shareholders.

In addition, we provide long-term incentives to our executives through stock options, which further aligns the interests of our executives with our shareholders because both shareholders and executives benefit from OPAY's growth and the appreciation in the value of our stock.

We operate in a competitive work environment in which executives are presented with many opportunities outside of OPAY.  In fiscal year 2012 we had employment contracts with Messrs. Hart, Hodges, Mohapatra, Garg, Omsberg, and Kendrick.  These contracts are intended to provide stability within our organization and allow for sustained focus and effort to grow and develop the company.

The Compensation Committee of the Board determines the compensation of the company's executive officers.  The Committee is composed entirely of directors who are "independent" under applicable Nasdaq rules.  Among other functions, the Compensation Committee is responsible for reviewing and approving the compensation of our executive officers, overseeing the evaluation of executive officer performance, and overseeing our incentive compensation programs.  In this role, the Compensation Committee seeks to implement our compensation philosophy and objectives across our compensation programs.

In fulfilling its duties in fiscal year 2012, the Compensation Committee was assisted by Compensia, Inc., a consulting firm that specializes in providing executive compensation advisory services.  Compensia is the Board and Compensation Committee's independent compensation consultant.  Compensia was involved in all aspects of the design and implementation of our compensation programs for fiscal year 2012.  The Compensation Committee used Compensia to assist in the compilation, review, and interpretation of marketplace compensation information, counsel the Compensation Committee about competitive market practices with respect to compensation plan design and market trends, and perform analyses and provide

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compensation consulting advice on an as-needed basis, at the request of the Compensation Committee.  The Compensation Committee retained Compensia because of Compensia's independent viewpoint and its expertise, particularly with technology companies.  Compensia and its affiliates do not provide any services to the company other than compensation advisory services provided to the Board and Compensation Committee.

The Compensation Committee determines the compensation of our chief executive officer without input from our CEO or any of our other executive officers.  The Committee considers the opinion of our CEO in setting the compensation of our other executive officers.

Implementing our Objectives

General

Our compensation programs in fiscal year 2012 were the result of careful deliberation and analysis by the Compensation Committee.  The Committee met 8 times during the fiscal year to consider executive compensation matters.  In performing its duties, the Committee consulted with its independent compensation consultant, Compensia.

In connection with a November 2011 meeting of the Compensation Committee, Compensia provided an analysis of the compensation of our executive officers.  Among other things, Compensia assessed the cash compensation of the company's executive officers, the equity incentives made available to these officers, and the company's performance.  At the Compensation Committee's request, Compensia provided market data on the compensation practices at public technology companies that Compensia deemed comparable to OPAY: Asta Funding, Inc.; Bottomline Technologies (de), Inc.; Cass Information Systems, Inc.; EasyLink Services International Corporation; Ebix, Inc.; Ellie Mae, Inc.; EPIQ Systems, Inc.; Higher One Holdings, Inc.; NIC Inc.; Online Resources Corporation; PRGX Global, Inc.; S1 Corporation; SciQuest, Inc.; SPS Commerce, Inc.; Synchronoss Technologies, Inc.; and VASCO Data Security International, Inc.  In advising the Committee, Compensia also drew on data from its proprietary market information database about compensation practices at technology companies with revenues between $50,000,000 and $200,000,000.

The compensation package for each of our executive officers consists of five main elements: base salary; annual incentive compensation; long-term incentives; perquisites and benefits; and severance and change of control provisions.

Alex P. Hart joined us as our President and Chief Executive Officer in August 2010.  Mr. Hart's compensation package was the subject of careful consideration by the Compensation Committee at the time of Mr. Hart's hiring and is set forth in his employment agreement and was discussed in the proxy statement for our 2011 annual meeting.  Based on information provided by Compensia in connection with Mr. Hart's hiring, the Compensation Committee believed Mr. Hart's base salary, annual incentive compensation, and long-term incentive compensation were at approximately the 50th percentile, relative to the comparable companies identified by Compensia.  The Compensation Committee re-evaluated Mr. Hart's compensation in fiscal year 2011 and fiscal year 2012.  Based in part on information provided by Compensia, the Compensation Committee did not adjust Mr. Hart's base salary in fiscal year 2011 or 2012 but did provide Mr. Hart with additional long-term incentive by awarding Mr. Hart options to purchase 100,000 shares of common stock in November 2011.  Our approach to Mr. Hart's compensation in fiscal year 2012 remained consistent with our approach to his compensation in fiscal year 2010 and fiscal year 2011, with these options providing additional long-term incentive.

The Compensation Committee also evaluated the compensation of our other named executive officers for fiscal year 2012.  As the Committee did when evaluating Mr. Hart's compensation package, the

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Committee considered market data (including market data provided by Compensia) in determining the compensation for Messrs. Hodges, Mohapatra, Garg, Omsberg, and Kendrick.

The Committee did not follow a specific allocation method or formula in evaluating the compensation of the company's executive officers and in allocating between long-term and currently paid compensation and between cash and non-cash compensation, and members of the Committee relied on market analysis from Compensia, their own business experience and judgment, their own evaluations of Messrs. Hart, Hodges, Mohapatra, Garg, Omsberg, and Kendrick, and their own assessments of the company.  Based on information provided by Compensia, the Compensation Committee believes that the total cash compensation (defined as the base salary and the bonus opportunity) for Mr. Hart, Mr. Hodges, Mr. Mohapatra, Mr. Garg, and Mr. Omsberg remained at approximately the 50th percentile, relative to the comparable companies for which Compensia provided data.

Base Salary

Base salary provides a predictable source of income and is a material component of the compensation of our named executive officers.  Each officer's salary is intended to reflect his role and responsibility within the company, as well as the skills, experience, and leadership qualities he brings to his position.

In November 2011 the Compensation Committee determined that Mr. Mohapatra's base salary would be increased from $215,000 to $235,000 based in part on his increased responsibilities and market comparison information provided by Compensia.  The Committee did not increase the base salary of any other of our named executive officers in fiscal year 2012.

The following table sets forth the base salaries of our named executive officers for fiscal years 2012, 2011, and 2010, presented at an annual rate:

The Compensation Committee expects to continue to review the salaries of the company's executive officers at least annually and will evaluate adjustments based upon OPAY's performance and financial position, individual performance, market survey data, and general economic conditions, among other factors.

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Annual Incentive Compensation

Our annual incentive compensation plan is designed to:

·	align the management team's financial interests with those of our shareholders;

·	support a performance-oriented environment that rewards OPAY's overall results;

·	attract, motivate, and retain key management critical to OPAY's success; and

·	align compensation with OPAY's business strategy, values, and management initiatives.

Annual incentives are used in particular to reward performance against defined financial metrics established as part of the company's annual budgeting and strategic planning process, such that our executive officers and other key contributors are recognized for specific and measurable company performance and incentivized to achieve performance targets on an annual basis.  As noted above, in fiscal year 2011, the company did not meet the threshold level of financial performance specified in our annual incentive plan for that year, and none of our executive officers received a payment under the plan for that year.  In fiscal year 2012, the company exceeded the "stretch" level of financial performance specified in our annual incentive plan, and all of our named executive officers received payments under the plan for that year.

For fiscal year 2012, we had one formal annual incentive compensation plan, our management incentive plan, or MIP.  In fiscal year 2012, all named executive officers were eligible to participate in the MIP.

Consistent with our overall compensation philosophy and objectives, the Compensation Committee designed the MIP so that payouts would be based on an executive's individual performance rating and on the achievement of performance goals.  The performance goals consisted of company performance goals and one or more individual performance goals for each individual participating in the MIP.  The Committee approved the company performance goals under the MIP in November 2011 and individual performance goals for each participant in the MIP in December 2011.  The company performance metric was net income from continuing operations before interest expense net of interest income, income taxes, depreciation amortization and stock-based compensation in both equity and cash, and restructuring charges (subject to adjustments as may be determined by the Compensation Committee), which we refer to as Adjusted EBITDA.  The Compensation Committee believed that linking MIP payouts to Adjusted EBITDA was particularly appropriate for the company because management uses Adjusted EBITDA as a primary measure to evaluate our business.  Management also uses Adjusted EBITDA to evaluate our performance against peer companies within the electronic payments industry.  Our management incentive plan is intended to be "self-funding" in that the level of adjusted EBITDA must be achieved after deducting the full amounts of the proposed MIP payouts.

The company performance goals for fiscal year 2012 were as follows:

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These goals were approved by the Compensation Committee based upon OPAY's strategic plan and budget process.  Under the plan approved by the Compensation Committee in November 2011, no executive officer would receive payment under the MIP for meeting his or her individual performance goals unless the company met or exceeded its threshold performance goal, $2,640,000 of Adjusted EBITDA in fiscal year 2012.

The Committee also specified individual performance goals for each of company's executive officers.  The individual performance goals were strategic goals based on each executive officer's area of responsibility.  Mr. Hart's individual performance goals were:

·	Generate $3 million in Adjusted EBITDA in fiscal year 2012

·	Develop a deeper understanding of the business (develop and utilize the key metrics for each payment type and each vertical market by end of fiscal year 2012)

·	Increase the number of payments-oriented investment analysts covering the company from one to at least three by end of fiscal year 2012

·	Complete the company's IT infrastructure project by end of fiscal year 2012

The individual goals for our named executive officers other than Mr. Hart focused on their leadership and accomplishments in their areas of responsibility within OPAY.  These individual goals are aligned with the overall company objectives and the CEO's goals.

The relative weighting of company goals and of individual goals varied by named executive officer under the MIP.  The following table illustrates the relative weighting of company performance goals and individual performance goals for each of our named executive officers:

For Mr. Hart, company performance goals were weighted relatively higher, because of his relatively greater responsibility for, and relatively greater ability to influence, the company's financial performance.  For our other named executive officers, individual performance goals were weighted relatively higher, because of their lesser ability to influence company performance and their relatively greater responsibility for, and relatively greater ability to influence, the discrete areas of company operations that were the focus of their individual performance goals.

An executive officer's individual performance rating affected his payout under the MIP in at least two ways.  First, an executive was required to receive an individual performance rating of "meets expectations" or higher in order to receive any payment under the MIP.  Second, an executive's individual performance rating affected the payout in respect of his individual performance goals: if the officer received a rating of "meets expectations," he would receive a payout of 75% of any individual performance goal he satisfied; if the officer received a rating of "exceeds expectations," he would receive a payout of 100% of any individual performance goal he satisfied; and if the officer received a rating of

 

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"far exceeds expectations," he would receive a payout of 110% of any individual performance goal he satisfied – in each case assuming that the company achieved its threshold level of financial performance, as discussed above.  The Compensation Committee determines the CEO's performance rating based on accomplishment of the CEO's goals and the Compensation Committee's evaluation of the overall performance of the CEO.  The Compensation Committee determines the other named executives' individual performance ratings, with input from the CEO.

The following table illustrates the payouts that our named executive officers would have received under the 2012 MIP in the circumstances specified in the notes to the columns of the table:

(1)

The "threshold" column specifies the payout an executive officer would have received, if the company had achieved the "threshold" level of financial performance described above, the executive had achieved none of his individual performance goals, and the executive had received an individual performance rating of "meets expectations."

(2)

The "target" column specifies the payout an executive officer would have received, if the company had achieved the "target" level of financial performance described above, the executive had achieved all of his individual performance goals, and the executive had received an individual performance rating of "exceeds expectations."

(3)

The "maximum" column specifies the payout an executive officer would have received, if the company had achieved the "stretch" level of financial performance described above, the executive had achieved all of his individual performance goals, and the executive had received an individual performance rating of "far exceeds expectations."

During fiscal year 2012, the company exceeded the "stretch" level of Adjusted EBITDA described above.  We discuss our Adjusted EBITDA for fiscal year 2012, and we reconcile Adjusted EBITDA to net income from continuing operations, on pages 14-15 of our annual report on Form 10-K for the fiscal year ended September 30, 2012.  In addition, each executive officer achieved some or all of his individual performance goals, and each executive officer received an individual performance rating of "meets expectations" or "exceeds expectations."  Accordingly, each of our named executive officers was eligible to receive a payout under the 2012 MIP.  The company made payments under the 2012 MIP to each executive officer in cash in the first quarter of fiscal year 2013.

If performance targets for a fiscal year are not met, the Compensation Committee may still elect to pay bonus incentive compensation on a discretionary basis.  There is no limit on the Compensation Committee's discretion; however, for fiscal year 2012, the Compensation Committee did not exercise discretion to increase the bonus compensation payable to any executive officer.  The Compensation Committee exercises its discretion to pay bonus compensation where it determines that such a payment would increase shareholder welfare over the medium- and long-term.  In determining whether and how to exercise their discretion to pay incentive compensation, members of the Compensation Committee are subject to the same standards of fiduciary duty, good faith, and business judgment that govern the exercise of their other responsibilities as directors of OPAY.

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Long-Term Incentive Compensation

General

Our long-term incentive plans are designed to promote many of the same purposes as our annual incentive compensation plans, including aligning employee and shareholder interests and attracting, motivating, and retaining our employees.  Long-term incentive plans, however, focus on the achievement of our business objectives and the measurement of performance over a longer time horizon and the retention of a successful and tenured employee team over time.

We provide long-term incentives through equity-based awards granted under our Amended and Restated 2004 Stock Incentive Plan, or the 2004 Plan.  From time to time, we may also grant equity awards outside of our established equity plans to new executives as an inducement material to their entering into employment with us, as permitted by Nasdaq rules.  These incentives are designed to motivate executives through equity ownership or compensation tied to stock appreciation.

As discussed in the proxy statement for our 2012 annual meeting, during fiscal year 2011, with the twin goals of providing long-term incentives to our employees and aligning the interests of our stockholders and employees, the Compensation Committee authorized grants of stock options to all employees who did not then hold options.  The Committee determined that this was appropriate because it believed that a workforce in which all the employees held equity incentives would be more highly motivated to achieve the company's business objectives and produce value for shareholders.

2004 Plan

In fiscal year 2012, the Compensation Committee continued the existing policy of granting stock options to new hire employees at the quarterly Compensation Committee meeting after their date of hire. The Compensation Committee believes that these grants operate as long-term incentives in part because they vest over time, in part because their value can increase over time if and as the price of the company's common stock increases, and in part because they generally expire ten years from the date of grant.  The Compensation Committee believes that options align the interests of employees and stockholders because the value of the options increases as the price of the common stock increases.

In fiscal year 2012, the Compensation Committee authorized the grant of options to purchase 482,250 shares of common stock, including grants of options to each new employee, grants resulting from promotions, and grants to executive officers including a grant of options to purchase 100,000 shares to Mr. Hart, and grants of options to purchase 25,000 shares to each of Messrs. Hodges, Garg, Mohapatra, Omsberg, and Kendrick.  The Committee believes that the grants made were consistent with the objectives of attracting, retaining and motivating talented employees, supporting business strategies that promote growth, and aligning executive goals with the interests of our shareholders.  The Committee authorized these grants as part of its continuing assessment of the company's executive compensation program, including the value of options granted in prior years and the limited retention incentive provided by those previously‑granted options.

The options granted under the 2004 Plan in fiscal year 2012 were granted with an exercise price equal to the closing market price of our common stock on the Nasdaq on the date of grant, and are generally exercisable for a period of ten years.  Generally, subject to acceleration in the circumstances described below, one quarter of the options subject to each grant vest on the first anniversary of the date of grant, and 1/48 of the options vest each month thereafter.  Options that are unvested upon an executive's termination are generally forfeited, unless otherwise provided in an option agreement or employment agreement.  We believe this encourages executive performance, tenure, and the promotion of the company's sustained growth.  Our named executive officers may be entitled to accelerated vesting of

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their options under certain circumstances, including in the event of a change of control in accordance with their option agreements or under the Change in Control Equity Vesting Acceleration Plan adopted in November 2011.  See Potential Payments Upon Termination or Change in Control for additional information.

PSU Plan

For a portion of fiscal year 2012, long-term incentives were also available as performance stock units granted under our Executive Performance Stock Unit Plan.  In an effort to further align our executives' financial interests with those of our shareholders and promote stability in key executive positions, the Compensation Committee adopted the PSU Plan on December 4, 2008.  Under the PSU Plan, a maximum of 800,000 units were available for issuance as awards to eligible executives.  The units were to be awarded only upon the achievement and maintenance for a period of 60 days of specific share performance targets, or Share Price Performance Targets, that, for the initial participants in the PSU Plan, were $8.00, $9.50, $11.00, and $13.00 per share. For participants hired after December 4, 2008, the Committee had the authority to establish Share Price Performance Targets based on 25%, 50%, 75%, and 100% increases in the share price.

Any PSUs awarded would have vested on December 4, 2011, the third anniversary of the December 4, 2008 effective date.  Because we did not achieve the applicable Share Price Performance Targets under the PSU Plan, the PSUs expired un-awarded in December 2011.

Perquisites and Benefits

Our benefits programs include paid time off; medical, dental, and vision insurance; a 401(k) plan with a safe harbor matching contribution; group term life insurance; short term disability; long term disability; and a range of voluntary or elective benefits.  All of our full-time employees, including our named executive officers, are generally eligible to participate in these programs.  We provide these programs because we believe that some level of personal benefits is necessary as part of a competitive compensation arrangement for our employees.  We do not have an established executive benefits program or an executive perquisite program.

We provide commuting and relocation benefits to executive officers who do not reside near our headquarters when they join us.  We believe these perquisites benefit us and our shareholders by inducing individuals who do not live near our headquarters to join OPAY, and by ensuring that these executive officers are able to maintain a regular presence at our headquarters to meet their duties and responsibilities in full.  Following fiscal year 2011, we moved our corporate headquarters from Reston, Virginia to Norcross, Georgia. Pursuant to his employment agreement with us, we reimbursed Mr. Hart $7,558 in fiscal 2012 for expenses for local transportation while he was located in Reston, Virginia and air and ground transportation, meals and lodging for travel by Mr. Hart to and from his home to our corporate headquarters in Reston.  See Summary Compensation Table below.  We believe these limited perquisites provided to Mr. Hart are important for retention of Mr. Hart as an employee and Chief Executive Officer.

Mr. Garg joined us early in fiscal year 2011.  At the time he joined us, Mr. Garg resided in the Oak Brook, Illinois area.  He received a relocation package modeled on Mr. Hart's relocation package:  Mr. Garg was eligible for relocation reimbursement not to exceed $50,000 to move his residence from Oak Brook to Reston, and during and up to the first 12 months of his employment with us, we agreed to reimburse him for all reasonable and documented expenses for housing, meals, and transportation while working at our Norcross headquarters and maintaining a residence more than 50 miles from Norcross.  During fiscal year 2011, we paid Mr. Garg $33,239 for such travel expenses.  Mr. Garg did not relocate to Norcross, and in his current employment agreement, we have agreed to provide Mr. Garg with commuting and relocation benefits – applicable to travel between Oak Brook and Norcross and to relocation to Norcross –

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similar to those that were available under his prior employment agreement.  During fiscal year 2012, we paid Mr. Garg $54,615 for such travel expenses.

We provided Mr. Kendrick with local transportation for travel while he was located at our corporate headquarters.  In addition, we reimbursed Mr. Kendrick for travel to and from his current residence to our corporate headquarters.  Travel reimbursement included airfare, ground transportation, parking, and meals.  Mr. Kendrick was provided home office equipment and a cellular phone to assist him in executing his responsibilities while he is absent from our headquarters.  In addition, under Mr. Kendrick's June 30, 2008 employment agreement, if Mr. Kendrick recognizes income for income tax purposes as a result of our payment of certain expenses, we were obligated to make a tax gross-up payment to Mr. Kendrick based upon the additional tax liability.  During fiscal year 2012, $68,788 in respect of his travel, and $55,667 in respect of his tax reimbursement was paid to Mr. Kendrick.  See Summary Compensation Table below.  OPAY's Compensation Committee has expressed the intent not to include a tax gross-up provision in any new employment contract, and we did not include a tax gross-up provision in our new agreements with Messrs. Hart, Hodges, Mohapatra, Garg, or Omsberg.

Clawbacks

We impose compensation recovery, or "clawback," provisions to certain of our compensation arrangements.  A clawback provision encourages compliance with applicable laws and corporate policies, including financial reporting requirements.

Our employment agreements with Messrs. Hart and Hodges provide that if the Compensation Committee, in its reasonable discretion, determines that Mr. Hart or Mr. Hodges, respectively, engaged in fraud or misconduct as a result of which or in connection with which OPAY is required to or decides to restate its financial statements, the Compensation Committee may, in its discretion, impose any or all of the following:

·

immediate expiration of any then-outstanding equity compensation, whether vested or not, if granted within the first 12 months after issuance or filing of any financial statement that is being restated (we refer to the 12-month period immediately following the issuance or filing of any financial statement that is being restated as the "Recovery Measurement Period");

·

as to any exercised portion of any stock options (to the extent, during the Recovery Measurement Period, the options are granted, vest, are exercised, or the purchased shares are sold), prompt payment to OPAY of any option gain, which is defined as the spread between the closing price on the date of exercise of the option and the exercise price paid by Mr. Hart or Mr. Hodges, respectively;

·	payment or transfer to OPAY of any stock gain, as defined in the employment agreement, from restricted stock, restricted stock units, or other similar forms of compensation; and/or

·	repayment of any bonuses paid during the Recovery Measurement Period.

In addition to the foregoing, following an accounting restatement due to material noncompliance with any financial reporting requirements under securities laws, Messrs. Hart and Hodges will be required to repay any incentive-based compensation (including any bonuses and equity compensation) paid during the three-year period preceding the date that OPAY is required to prepare the accounting restatement which bonuses or equity compensation were based on the erroneous data.  For purposes of this provision, the clawback is calculated as the excess amount paid on the basis of the restated results.

The Compensation Committee believes that these clawback provisions protect OPAY and its

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shareholders in the event of fraud, misconduct, or other material noncompliance with financial reporting requirements.

Severance and Change in Control Benefits

Pursuant to the employment agreements we have entered into with our executives, our executives are entitled to specified benefits in the event of the termination of their employment under specified circumstances, including termination following a change of control of OPAY.  We believe these benefits help us compete for executive talent and reduce the distractions that might otherwise be caused by a possible change of control.

Our employment contracts with Messrs. Hart, Hodges, Mohapatra, Garg, and Omsberg all contain a "double trigger" structure for payments in connection with a change in control of OPAY.  Under a "double trigger" structure, in order to receive a change in control severance payment, both a change in control must occur, and the executive's employment must terminate due to a termination by OPAY or its successor without cause, or due to a resignation by the executive for good reason.  We believe that this "double trigger" structure maximizes shareholder value because it prevents an unintended windfall to executives in the event of a friendly change of control, while still providing them appropriate incentives to cooperate in negotiating any change of control in which they believe they may lose their jobs.

If Mr. Hart is terminated without cause or resigns for good reason within a year following a change of control, and subject to his delivery and non-revocation of a general release of claims in favor of OPAY, he will be entitled to the following:

·	cash severance equal to two times his annual base salary and target bonus paid in equal installments over a 24 month period;

·	if Mr. Hart elects to continue receiving group medical insurance under the COBRA continuation rules, payment by us of the same share of the premium we pay for active and similarly situated employees until the earlier of 12 months after his employment ends or the date his COBRA coverage expires; and

·	vesting of any outstanding equity awards with respect to any unvested portions that would have vested on or before the first anniversary of the date of his termination or resignation.

If Mr. Hodges is terminated without cause or resigns for good reason within a year following a change of control, and subject to his delivery and non-revocation of a general release of claims in favor of OPAY, he will be entitled to the following:

·	cash severance equal to 1.5 times his annual base salary and target bonus paid in equal installments over an 18 month period;

·

if Mr. Hodges elects to continue receiving group medical insurance under the COBRA continuation rules, payment by us of the same share of the premium we pay for active and similarly situated employees until the earlier of 18 months after his employment ends or the date his COBRA coverage expires; and

·	vesting of any outstanding unvested stock options.

If Mr. Hart or Mr. Hodges is terminated without cause or resigns for good reason in the absence of a change of control, and subject to his delivery and non-revocation of a general release in our favor, each will be entitled to the following:

·	cash severance equal to one times, in the case of Mr. Hart, and 12 months, in the case of Mr. Hodges, of his annual base salary, plus any annual discretionary bonus that has been awarded to him by the Board for the calendar year preceding the year in which his employment ends; and

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·

if Mr. Hart or Mr. Hodges elects to continue receiving group medical insurance under the COBRA continuation rules, payment by us of the same share of the premium we pay for active and similarly situated employees until the earlier of 12 months after his employment ends or the date his COBRA coverage expires.

We have similar change of control and severance provisions in our contracts with Messrs. Garg, Mohapatra, and Omsberg.  See Potential Payments Upon Termination or Change in Control below.

In November 2011, the Board adopted a Change in Control Equity Vesting Acceleration Plan.  The company's named executive officers are participants in the plan.  In adopting the plan, the Compensation Committee recognized that the possibility of a change of control of OPAY may result in the departure or distraction of management to the detriment of OPAY and its shareholders and wished to assure our executives a fair compensation arrangement so they could remain focused on the performance of OPAY during a change of control situation.

The plan provides for the immediate exercisability of a participant's outstanding options and the immediate vesting of a participant's unvested restricted shares and RSUs if both a change in control and a covered termination occur during the covered period.  Because both of these must occur, the plan is also a "double trigger" plan.  The plan defines "change in control" to include (i) the acquisition by an individual, entity, or group of beneficial ownership of OPAY's common stock if, after such acquisition, such person beneficially owns 50.01% or more of the then-outstanding shares of common stock of OPAY; (ii) the consummation of certain types of mergers, consolidations, reorganizations, recapitalizations, and share exchanges specified in the plan; (iii) a change in the composition of our Board of Directors that results in the continuing directors (as defined in the plan) no longer constituting a majority of the Board; and (iv) the liquidation or dissolution of OPAY.  The plan's definition of "change in control" is subject to the terms, conditions, and limitations, including the Board authority, specified in the plan, and the Board may, in certain circumstances, treat a change in control as not satisfying the foregoing definition.

If a participant is terminated for any reason other than cause, death, or disability, the termination is a covered termination under the plan.  In addition, if the participant has an individual employment agreement that permits him to resign for good reason and he resigns for good reason under his individual employment agreement, then, subject to the conditions and limitations specified in the plan, the resignation is a covered termination under the plan.  Acceleration under the plan is also subject to a release of claims against the company.

The covered period under the plan is the period twelve months after a change in control. The Board may amend the plan, but no amendment can modify or diminish the rights to equity vesting acceleration of any options, restricted shares, or RSUs that are outstanding at the time of the amendment.  In the event an individual employment agreement provides for a benefit that is more favorable to that individual than the Change of Control Equity Acceleration Vesting Plan, the provision more favorable to the individual controls.  Going forward, the Compensation Committee believes that the Change in Control Equity Vesting Acceleration Plan provides a unified and structured approach to equity vesting in connection with a change in control.

We have provided more detailed information about our severance and change of control benefits, along with estimates of their value under various circumstances, under Potential Payments Upon Termination or Change of Control below.

Equity Ownership Guidelines

Members of OPAY's Board of Directors are required to hold shares of OPAY common stock with a value equal to three times the amount of the annual retainer paid to directors, calculated using the annual retainer in effect as of the later of March 31, 2009 and the date the director is elected to the Board.  Directors are required to achieve the guideline within three years of joining the Board, or, in the case of

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directors serving at March 31, 2009, within three years of that date. These guidelines may be waived, at the discretion of OPAY's Governance and Nominating Committee, if compliance would create severe hardship or prevent a director from complying with a court order.  Please see Director Compensation for additional information concerning director retainers.

OPAY currently does not have equity ownership guidelines for its executive officers.

Tax and Accounting Implications

Deductibility of Compensation

Section 162(m) of the Internal Revenue Code of 1986, as amended, or the Code, generally disallows federal tax deductions for compensation in excess of $1.0 million paid, generally, to the Chief Executive Officer and the next three highly paid officers, other than the Chief Financial Officer.  Compensation that is "performance-based" within the meaning of the Code does not count toward the $1.0 million limit.  We believe it is in our best interest, to the extent practicable, to have executive compensation be fully deductible under the Code.  However, the Compensation Committee has full discretion to provide compensation that potentially may not be fully deductible.

Accounting for Share-Based Compensation

We value share-based compensation based on the grant date fair value using the Black-Scholes model for options and the Monte Carlo simulation option pricing model for RSUs and PSUs.  We recognize compensation expense over the vesting period of the option, RSU or PSU grants, which ranges from three to five years.  Additional information about the valuation of our options and RSUs can be found in Note 12—Share-Based Payment of our Annual Report on Form 10-K for fiscal year ended September 30, 2012.

EXECUTIVE COMPENSATION

This section provides certain tabular and narrative information regarding the compensation of our named executive officers, which for fiscal year 2012 consist of Alex P. Hart, our President and Chief Executive Officer; Jeffrey W. Hodges, our Chief Financial Officer; Sandip Mohapatra, our Chief Technology Officer; Atul Garg, our Senior Vice President, Corporate Development, Keith Omsberg, our Vice President, General Counsel and Corporate Secretary, and Keith S. Kendrick, who served as our Senior Vice President, Strategic Marketing through August 1, 2012.  For additional information regarding compensation of the named executive officers, see Compensation Discussion and Analysis beginning on page 7.

SUMMARY COMPENSATION TABLE

The following table sets forth information regarding compensation of our named executive officers during the fiscal years ended September 30, 2012, 2011, and 2010.  References to "years" in the tables in this section are to our fiscal years ended September 30, 2012, September 30, 2011, and September 30, 2010.

Name and Principal Position	Year		Salary ($)				Bonus ($) (1)				Option Awards ($) (2)				Non-Equity Incentive Plan Compensation ($)(3)				All Other Compensation ($) (4)				Total ($)
Alex P. Hart (5) President, Chief Executive Officer
	2012		$	400,000			$	—			$	148,600			$	570,000			$	18,148			$	1,136,748
	2011			400,000				—				—				—				52,272				452,2722
	2010			38,462				100,000				830,560				—				6,319				975,341

 

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Name and Principal Position	Year		Salary ($)				Bonus ($) (1)				Option Awards ($) (2)				Non-Equity Incentive Plan Compensation ($)(3)				All Other Compensation ($) (4)				Total ($)
Jeffrey W. Hodges (6) Chief Financial Officer	2012			275,000				—				37,115				254,375				10,478				576,968
	2011			74,038				75,000				488,650				—				2,572				640,260
Sandip Mohapatra (7) Chief Technology Officer	2012			230,385				—				37,115				235,000				8,653				511,153
	2011			158,702				—				420,064				—				6,115				584,881
Atul Garg (8) Senior Vice President, Corporate Development	2012			225,000				—				37,115				182,813				63,188				508,116
	2011			199,039				50,000				477,560				—				40,850				767,449
Keith S. Omsberg Vice President, General Counsel and Corporate Secretary	2012			220,000				—				37,115				206,800				8,358				472,273
	2011			208,346				—				166,200				—				7,789				382,335
	2010			190,000				—				—				—				7,239				197,239
Keith S. Kendrick(9) Senior Vice President, Strategic Marketing	2012			265,000				—				37,115				230,219				415,090				947,424
	2011			265,000				—				221,600				—				94,630				581,230
	2010			265,000				—				—				—				168,901				433,901

(1)	Reflects bonuses payable to Messrs. Hart, Hodges, and Garg pursuant to their employment agreements.

(2)

The amounts included in these columns reflect the aggregate grant date fair value of option awards granted to the named executive officers during each year, computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718.  Assumptions used in the calculation of these amounts are included in Note 12, Share-based Payment, to the audited consolidated financial statements included in our annual report on Form 10-K for fiscal year 2012.

These amounts represent the expected compensation cost to be recognized over the service period determined as of the grant date.  These amounts reflect our calculation of the value of these awards on the date of grant and do not necessarily correspond to the actual value that may ultimately be realized by the officer.  See the "Grants of Plan-Based Awards During Fiscal 2012" table for information regarding option awards to the named executive officers during fiscal 2012.

(3)	Reflects amounts payable pursuant to the 2012 Management Incentive Plan.

(4)	Consists of:

·	the aggregate incremental cost to OPAY of providing perquisites and other personal benefits;

·	company matching contributions under 401(k) plans;

·	tax reimbursement payments relating to income tax liability incurred by the applicable executive as a result of the Company's payment for the perquisites described below;

·	the dollar value of insurance premiums paid by, or on behalf of, the company during the covered fiscal year with respect to life insurance for the benefit of the named executive officers; and

·	severance related payments.

The following table summarizes the amounts shown in the "All Other Compensation" column:

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(a)	See Perquisites and Benefits in Compensation Discussion and Analysis for a discussion of perquisites provided to executives.  Perquisites include:

*	expenses for corporate apartments located near our corporate headquarters, located in Reston, Virginia in fiscal 2011 and in Norcross, Georgia, in fiscal year 2012, in each case including utilities;

*

for Messrs. Hart, Garg, and Kendrick, expenses for local transportation while the executive was located in Reston and air and ground transportation, meals and lodging for travel by the executive to and from his home to our corporate headquarters in Reston, and for Messrs. Garg and Kendrick, expenses for local transportation while the executive was located in Norcross and air and ground transportation, meals and lodging for travel by the executive to and from his home to our corporate headquarters in Norcross; and

*	legal consultation fees relating to negotiation and review of the executive's employment agreement.

The following table summarizes the amounts shown in the "Perquisites" column:

(5)	Mr. Hart joined the Company August 16, 2010.

(6)	Mr. Hodges joined the Company June 13, 2011.

(7)	Mr. Mohapatra joined the Company December 13, 2010.

(8)	Mr. Garg joined the Company November 1, 2010.

(9)	Mr. Kendrick's employment with the company terminated on September 30, 2012.

FISCAL 2012 GRANTS OF PLAN-BASED AWARDS

The following table sets forth information regarding grants of plan-based awards made to the named executive officers during the fiscal year ended September 30, 2012:

Estimated Possible Payouts Under Non-Equity Incentive Plan Awards(1)

Name

Grant Date

Threshold ($) (2)

Target ($) (3)

Maximum ($) (4)

All Other Option Awards: Number of Securities Underlying Options (#)

Exercise or Base Price of Option Awards ($/sh)

Grant Date Fair Value of Stock and Option Awards ($)(5)

Alex P. Hart

MIP

$

120,000

$

300,000

$

612,000

 

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			Estimated Possible Payouts Under Non-Equity Incentive Plan Awards(1)
Name	Grant Date		Threshold ($) (2)				Target ($) (3)				Maximum ($) (4)				All Other Option Awards: Number of Securities Underlying Options (#)				Exercise or Base Price of Option Awards ($/sh)				Grant Date Fair Value of Stock and Option Awards ($)(5)
2004 Plan Grant	11/30/11															100,000			$	3.47			$	148,460
Jeffrey W. Hodges
MIP				48,125				137,500				283,250
2004 Plan Grant	11/30/11															25,000				3.47				37,115
Sandip Mohapatra
MIP				41,125				117,500				242,050
2004 Plan Grant	11/30/11															25,000				3.47				37,115
Atul Garg
MIP				39,375				112,500				231,750
2004 Plan Grant	11/30/11															25,000				3.47				37,115
Keith Omsberg
MIP				38,500				110,000				226,600
2004 Plan Grant	11/30/11															25,000				3.47				37,115
Keith S. Kendrick
MIP				46,375				132,500				272,950
2004 Plan Grant	11/30/11															25,000				3.47				37,115

(1)	Figures shown represent possible payouts under our 2012 MIP.  For additional information concerning performance metrics and payouts under our 2012 MIP, see Compensation Discussion and Analysis.

(2)

The "threshold" column specifies the payout an executive officer would have received under the 2012 MIP, if the company had achieved the "threshold" level of financial performance described above, the executive had achieved none of his individual performance goals, and the executive had received an individual performance rating of "meets expectations."

(3)

The "target" column specifies the payout an executive officer would have received under the 2012 MIP, if the company had achieved the "target" level of financial performance described above, the executive had achieved all of his individual performance goals, and the executive had received an individual performance rating of "exceeds expectations."

(4)

The "maximum" column specifies the payout an executive officer would have received under the 2012 MIP, if the company had achieved the "stretch" level of financial performance described above, the executive had achieved all of his individual performance goals, and the executive had received an individual performance rating of "far exceeds expectations."

(5)

Represents the aggregate fair market value on date of grant, in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718.  Assumptions used in the calculation of these amounts are included in Note 12, Share-based Payment, to the audited consolidated financial statements included in our annual report on Form 10-K for fiscal year 2012.

OUTSTANDING EQUITY AWARDS AT 2012 FISCAL YEAR-END

The following table sets forth for each named executive officer certain information about stock options held at the end of the fiscal year ended September 30, 2012:

Name		Number of Securities Underlying Unexercised Options (#) Exercisable				Number of Securities Underlying Unexercised Options (#) Unexercisable (a)				Option Exercise Price ($)			Option Expiration Date
Alex P. Hart			208,333				191,667	(1)		$	5.06		8/16/20
			—				100,000	(2)			3.47		11/29/21
			208,333				291,667
Jeffrey W. Hodges			78,125				171,875	(3)			4.67		6/12/21
			—				25,000	(4)			3.47		11/29/21
			78,125				196,875

 

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(a)	Vesting schedules of the unexercisable option awards are set forth below.  Vesting may be accelerated under certain circumstances described in Potential Payments upon Termination or Change of Control.

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POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL

This section provides information regarding payments and benefits to the named executive officers that would be triggered by termination of the officer's employment (including voluntary termination, involuntary termination, resignation for good reason and termination due to death or disability) or a change of control of OPAY.

Some key terms in our employment agreements with our named executive officers are "cause" and "good reason."  Summaries of these definitions, which are qualified by reference to the full definitions and related provisions in the employment agreements, are as follows:

Under the employment agreements in place with Messrs. Hart, Hodges, and Mohapatra at the end of fiscal 2012, cause is defined generally as the employee's:

·

fraud;

·	material misrepresentation;

·	theft or embezzlement of our assets;

·	conviction, or pleas of guilty or nolo contendere to any felony (or felony charge reduced to a misdemeanor), or, with respect to the employee's employment, certain misdemeanors;

·	material failure to follow OPAY's policies;

·	material breach of certain provisions of the agreement; and/or

·	continued failure to attempt in good faith to perform duties as reasonably assigned by the Board.

Under our employment agreements in place with Mr. Garg and Mr. Omsberg at the end of fiscal 2012, cause means a finding by OPAY of:

·	a conviction of the employee of, or a plea of guilty or nolo contendere by the named executive officer to, any felony;

·	an intentional violation by the employee of federal or state securities laws;

·	willful misconduct or gross negligence by the employee that has or is reasonably likely to have a material adverse effect on OPAY;

·	a failure of the employee to perform his reasonably assigned duties for OPAY that has or is reasonably likely to have a material adverse effect on OPAY;

·	a material violation by the employee of any material provision of our Business Code of Conduct or any other applicable policies in place;

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·	a violation by the named executive officer of any provision of his Proprietary and Confidential Information, Developments, Noncompetition and Nonsolicitation Agreement with us; or

·	fraud, embezzlement, theft or dishonesty by the employee against us.

Under the employment agreements with Messrs. Hart, Hodges, Mohapatra, and Garg at the end of fiscal 2012, good reason generally means, without the employee's prior written consent, a material diminution in his authority, duties or responsibilities (subject to certain exceptions), certain breaches by OPAY of any material provision of his employment agreement, or OPAY's requiring him to perform his principal services primarily in a geographic area more than 50 miles from our headquarters.

Under these employment agreement with Mr. Omsberg, good reason means, without the employee's prior written consent, the occurrence of any of the following:

·	any reduction in the employee's base salary;

·	any material diminution of the employee's duties, responsibilities, powers or authorities;

·	any relocation of his principal place of employment by more than fifty (50) miles or requirement that the employee relocate his principal place of resident by more than fifty (50) miles; or

·	a material breach by us of any material provision of the employment agreement.

Under our corporate policy, all employees, including our named executive officers, are entitled to payments for base salary and payout of any accrued personal time off, or PTO, accrued through the termination date, but not yet paid.  

Potential Payments Due under our Employment Agreement with our Chief Executive Officer

On August 10, 2010, we entered into an employment agreement with our Chief Executive Officer, Alex P. Hart. Pursuant to the terms of this agreement, as amended on August 13, 2010, Mr. Hart is entitled to certain compensation and benefits upon termination of his employment and/or a change of control of OPAY, generally payable in equal installments in accordance with our standard payroll practices and provided, in the case of a termination without cause or a voluntary termination for good reason by Mr. Hart, that Mr. Hart delivers a general release of claims which must become irrevocable within 60 days of the date of the event. The following table describes the maximum potential payments that would have been due to Mr. Hart as of September 30, 2012, upon designated situations outlined in his employment agreement.

(1)	Amounts reflect maximum salary earned but not paid prior to date as of September 30, 2012 and personal time off accrued through September 30, 2012.

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(2)	Amounts reflect maximum salary earned but not paid prior to date as of September 30, 2012, and personal time off accrued through September 30, 2012

(3)	Amounts reflect maximum salary earned but not paid prior to September 30, 2012, one year's base salary, twelve months' continuation of health benefits and personal time off accrued through September 30, 2012.

(4)

Amounts shown are payable in the event of a termination of Mr. Hart's employment by OPAY without cause, or a resignation by Mr. Hart for good reason, within one year after a change of control, and reflect maximum salary earned but not yet paid through September 30, 2012, two times the annual base salary and target non-equity incentive plan compensation, twelve months' continuation of health benefits and personal time off accrued through September 30, 2012.  In addition, Mr. Hart is entitled to immediate vesting of any options that would have vested on or before the first anniversary of the date of employment termination.

(5)	The amount represents the value of in-the-money options that would vest through September 30, 2012 at a closing price of $4.93 less the cost to the employee to exercise the options at their exercise price.

Potential Payments Due under our Employment Agreement with our Chief Financial Officer

On May 23, 2011, we entered into an employment agreement with our Chief Financial Officer, Jeffrey W. Hodges.  Pursuant to the terms of this agreement, Mr. Hodges is entitled to certain compensation and benefits upon termination of his employment and/or a change of control of OPAY, generally payable in equal installments in accordance with our standard payroll practices and provided, in the case of a termination without cause or a voluntary termination for good reason by Mr. Hodges, that Mr. Hodges delivers a separation agreement and general release of claims which must become irrevocable within 60 days (or such earlier date as the release provides) of the date of the event.  The following table describes the maximum potential payments that would have been due to Mr. Hodges as of September 30, 2012, upon designated situations outlined in his employment agreement.

(1)	Amounts reflect maximum salary earned but not paid through September 30, 2012 and personal time off accrued through September 30, 2012.

(2)	Amounts reflect maximum salary earned but not paid prior to date as of September 30, 2012 and personal time off accrued through September 30, 2012.

(3)	Amounts reflect maximum salary earned but not paid prior to September 30, 2012, one year's base salary, twelve months' continuation of health benefits and personal time off accrued through September 30, 2012.

(4)

Amounts shown are payable in the event of a termination of Mr. Hodges' employment by OPAY without cause, or a resignation by Mr. Hodges for good reason, within one year after a change of control, and reflect maximum salary earned but not paid through September 30, 2012, 1.5 times base salary and target bonus, immediate vesting of any stock options, eighteen months' continuation of health benefits and personal time off accrued through September 30, 2012.

(5)	The amount represents the value of vested, in-the-money options as of September 30, 2012 at a closing price of $4.93 less the cost to the employee to exercise the options at their exercise price.

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Potential Payments Due under our Employment Agreement with our Chief Technology Officer

On May 26, 2011, we entered into an employment agreement with our Chief Technology Officer, Sandip Mohapatra, which replaced our prior agreement with Mr. Mohapatra.  Pursuant to the terms of the May 26, 2011 agreement, Mr. Mohapatra is entitled to certain compensation and benefits upon termination of his employment and/or a change of control of OPAY, generally payable in equal installments in accordance with our standard payroll practices and provided, in the case of a termination without cause or a voluntary termination for good reason by Mr. Mohapatra, that Mr. Mohapatra delivers a separation agreement and general release of claims which must become irrevocable within 60 days (or such earlier date as the release provides) of the date of the event.  The following table describes the maximum potential payments that would have been due to Mr. Mohapatra as of September 30, 2012, upon designated situations outlined in his employment agreement.

(1)	Amounts reflect maximum salary earned but not paid through September 30, 2012 and personal time off accrued through September 30, 2012.

(2)	Amounts reflect maximum salary earned but not paid prior to date as of September 30, 2012 and personal time off accrued through September 30, 2012.

(3)	Amounts reflect maximum salary earned but not paid prior to September 30, 2012, six months base salary, six months' continuation of health benefits and personal time off accrued through September 30, 2012.

(4)

Amounts shown are payable in the event of a termination of Mr. Mohapatra's employment by OPAY without cause, or a resignation by Mr. Mohapatra for good reason, within one year after a change of control, and reflect maximum salary earned but not paid through September 30, 2012, one times annual base salary, immediate vesting of any stock options that would have vested within the next twelve months, twelve months' continuation of health benefits and personal time off accrued through September 30, 2012.

(5)	The amount represents the value of vested, in-the-money options as of September 30, 2012 at a closing price of $4.93 less the cost to the employee to exercise the options at their exercise price.

Potential Payments Due under our Employment Agreement with our Senior Vice President, Corporate Development

On October 19, 2010, we entered into an employment agreement with our Senior Vice President, Corporate Development, Atul Garg.  Pursuant to the terms of this agreement, as amended on December 20, 2011, Mr. Garg is entitled to certain compensation and benefits, payable in a lump sum (with the exception of health benefits, which would be reimbursed monthly) within 30 days of the applicable event (or such later date as is required for compliance with tax laws governing deferred compensation) and provided in the case of a termination other than for death, disability, or cause or a voluntary termination by Mr. Garg, Mr. Garg signs a separation agreement and release.  The following table describes the maximum potential payments that would have been due to Mr. Garg as of September 30, 2012, upon designated situations outlined in his employment agreement.

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(1)	Amounts reflect maximum salary earned but not paid through September 30, 2012 and personal time off accrued through September 30, 2012.

(2)	Amounts reflect maximum salary earned but not paid prior to date as of September 30, 2012, six months' continuation of health benefits, and personal time off accrued through September 30, 2012.

(3)	Amounts reflect maximum salary earned but not paid prior to September 30, 2012, one-half times annual base salary, six months' continuation of health benefits and personal time off accrued through September 30, 2012.

(4)

Amounts shown are payable in the event of a termination of Mr. Garg's employment by OPAY without cause, or a resignation by Mr. Garg for good reason, within one year after a change of control, and reflect maximum salary earned but not paid through September 30, 2012, one times base salary, immediate vesting of any stock options that would have vested within the next twelve months, twelve months' continuation of health benefits and personal time off accrued through September 30, 2012.

(5)	The amount represents the value of vested, in-the-money options as of September 30, 2012 at a closing price of $4.93 less the cost to the employee to exercise the options at their exercise price.

On December 12, 2012, we entered into a letter agreement with Mr. Garg, our Senior Vice President, Corporate Development.  The letter agreement amended Mr. Garg's employment agreement dated December 21, 2011.  Pursuant to the letter agreement, Mr. Garg's termination benefits were increased so that, if the company terminates Mr. Garg without cause following a change in control of the company, the company will be required to pay COBRA premiums for Mr. Garg and any covered beneficiary eligible for COBRA during the twelve months following Mr. Garg's termination, unless the company's providing payments for COBRA will violate the nondiscrimination requirements of applicable law.

Potential Payments Due under our Employment Agreement with our Vice President, General Counsel and Corporate Secretary

On January 9, 2008 we entered into an employment agreement with our Vice President, General Counsel and Corporate Secretary, Keith Omsberg.  Pursuant to the terms of this agreement as amended November 3, 2010 and May 4, 2012, Mr. Omsberg is entitled to certain compensation and benefits, payable in a lump sum (with the exception of health benefits, which would be reimbursed monthly) within 30 days of the applicable event (or such later date as is required for compliance with tax laws governing deferred compensation) and provided in the case of a termination other than for death, disability, or cause or a voluntary termination by Mr. Omsberg, Mr. Omsberg signs a separation agreement and release.  The following table describes the maximum potential payments that would have been due to Mr. Omsberg as of September 30, 2012, upon designated situations outlined in his employment agreement.

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(1)	Amounts reflect maximum salary earned but not paid through September 30, 2012 and personal time off accrued through September 30, 2012.

(2)	Amounts reflect maximum salary earned but not paid prior to date as of September 30, 2012, one times annual base salary, twelve months' continuation of health benefits, and personal time off accrued through September 30, 2012.

(3)	Amounts reflect maximum salary earned but not paid prior to September 30, 2012, one times annual base salary, twelve months' continuation of health benefits and personal time off accrued through September 30, 2012.

(4)

Amounts shown are payable in the event of a termination of Mr. Omsberg's employment by OPAY without cause, or a resignation by Mr. Omsberg for good reason, within one year after a change of control, and reflect maximum salary earned but not paid through September 30, 2012, two times (a) base salary and (b) bonus equal to the average annual bonus paid to Mr. Omsberg (or for the most recent year, accrued for Mr. Omsberg) for the previous three years, immediate vesting of any stock options, eighteen months' continuation of health benefits and personal time off accrued through September 30, 2012.

(5)	The amount represents the value of vested, in-the-money options as of September 30, 2012 at a closing price of $4.93 less the cost to the employee to exercise the options at their exercise price.

Payments in connection with the termination of the employment of our former Senior Vice President, Strategic Marketing

On June 30, 2008, we entered into an employment agreement with Keith S. Kendrick.  Mr. Kendrick served as our Senior Vice President, Strategic Marketing, through August 1, 2012 and was an employee of the company through September 30, 2012.  Pursuant to the terms of his employment agreement, Mr. Kendrick was entitled to certain compensation and benefits, payable in a lump sum (with the exception of health benefits, which would be reimbursed monthly) within 30 days of the applicable event (or such later date as was required for compliance with tax laws governing deferred compensation) and provided in the case of a termination other than for death, disability, or cause or a voluntary termination by Mr. Kendrick, Mr. Kendrick signed a separation agreement and release.

Pursuant to Mr. Kendrick's separation agreement with us, Mr. Kendrick's cessation of employment with the company was characterized as a termination without cause.  In consideration for Mr. Kendrick's execution of his separation agreement and a release of claims, the company agreed to pay to Mr. Kendrick, on April 1, 2013, a lump-sum payment of $265,000, less applicable taxes and withholdings, which amount is equivalent to one times Mr. Kendrick's base salary rate upon his separation from the company, and agreed to pay the premium for twelve months' continuation of health benefits for Mr. Kendrick and his covered dependents following his separation from the company.

DIRECTOR COMPENSATION

The Governance and Nominating Committee of the Board determines the compensation of our non-employee Board members.  The committee is composed entirely of directors who are "independent" under applicable Nasdaq rules.  Compensation is generally reviewed annually, and more frequently when

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the Governance and Nominating Committee deems necessary In addition to the results of peer group studies, prior annual retainers and per-meeting fees are taken into account to determine overall compensation.

The following table describes the compensation program for our non-employee directors:

In addition, we reimburse our Board members for reasonable expenses, including travel related expenses, incurred to attend Board and/or committee meetings.

For fiscal year 2012, our Board members (other than Mr. Hart) were granted 9,000 restricted stock units in connection with the annual stockholder meeting.  These restricted stock units are payable in cash and vest in full one year from the date of grant, subject to full vesting in the event of a change of control.  The vesting and payout provisions of the restricted stock units under the circumstances described below are as follows:

·	Death and disability—Pro rata vesting through the date of death or disability; immediate payout

·	Voluntary resignation—Pro rata vesting through the date of resignation; payable at end of one-year vesting period

·	Termination for cause—Forfeit entire award

·	Change of control—100% vesting, payable on date of change of control

Mr. Hart, the only director who is also an employee of OPAY, receives no compensation for serving as a director.

Fiscal 2012 Director Compensation

For our fiscal year ended September 30, 2012, our directors were compensated in the manner described above.  The following table sets forth information regarding the compensation of our non-employee directors for the fiscal year ended September 30, 2012.

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